It is a known fact that primary market activity sizzles up when secondary market performance improves and a number of companies line up with their public issues to cash in on improved market sentiments.
There are three public issues that are ready to raise up to Rs 5,681 crore over the next week, but should you invest in the public issues that come in to cash in on the momentum?
If the past performance of issues that have hit the market in similar periods is something to go by, then the trend is not very encouraging.
In the period between April 2009 and October 2009, when the BSE Sensex rose from a level of around 9,900 to 17,000, ten companies came with their offerings. However, even as the Sensex is currently trading at over 19,000, eight out of them are still underperforming. Prominent names were Oil India Limited, Adani Power and Indiabulls Power.
Similarly, in the period between June and December 2010 when the Sensex rose from 16,572 to 20,509, 29 companies came out with their public issues including companies such as Coal India, MOIL and SKS Microfinance. But 23 out of the 29 public issues are still trading below their issue price.
Over the last two months, the Sensex has grown from 17,384 on September 3, to 19,305 on December 3, and three companies — Bharti Infratel (up to Rs 4,533 crore), Care Ratings (up to Rs 539 crore) and PC Jewellers (up to Rs 609 crore) have announced their public issues to raise an aggregate of Rs 5,681 crore over the next week.
Some experts say that IPO is a bull market product and issuers only come to raise funds when the market is on a rise and so investors should be extra careful while picking up an issue. A due diligence of the company and its pricing is very important.
“Investors need to be far more careful while investing in IPOs because there is no track record and experience in such companies. Also the peer comparison should be done with companies of similar market capitalisations,” said a top official with an investment bank.
Others agree. “Companies coming out with IPOs are not giving shares at par or at book value and so investors need to evaluate them like they do before investing in any stock in the secondary market. Equal caution should be practised in any equity investment,” said Dinesh Thakkar, CMD, Angel